In the lead up to the UK's exit from the EU we will find sterling on a hair trigger. The ability to second guess which way a currency's value will move is as elusive as partisan free rhetoric in Westminster.
So, because neither you nor we can seriously hope to accurately predict where the rate will end up (so numerous are the possible outcomes) we find ourselves incentivised to tell you about how to make sure you're not too drastically affected by whatever the result ends up being.
1 First off...if you have invoices on your desk that you know need paying in the next 3 to 6 months and you can afford to settle them now, don't, just buy the currency you need in order to do so now.
Keep your capital where it is, but, take out a contract 'buying forward' to the tune of at least some of the foreign currency you'll need to settle those invoices in the months to come.
If the rate drops then you've bought in well.
If the rate rises then you don't need to pay it any attention because you've covered yourself.
Ask your supplier to invoice you in Sterling.
By requesting that your overseas supplier take on the currency risk, you can forecast what you need to accumulate far more easily.
Granted, a number of suppliers will not do this, but, if you would prefer clarity and are prepared to pay a fractional premium in order to get it then your counter-parties may find that more appealing all together.
Earning in a foreign currency?
Whether you are an individual salaried in a foreign currency or a business selling in overseas markets but reporting in sterling, accurately forecasting a proportion of those sales and taking steps to protect your revenue is sensible.
Similar in some respect to the importer 'buying forward', the company selling to overseas markets should be trying to extend access to a weak pound for as long as they can...because doing so cements if not increases margin.
Work out your break even rate.
If you're a business operating in any way with foreign currencies or customers paying you in something other than sterling then you need to be aware of your break even rate, and understand how to use it as a guiding principle for your currency activities.
Our expert brokers place great weight on the importance of knowing your 'break even' rate. Centre around an understanding of your margin (desired, implied or immovable) the first step towards mitigating exposure to rate movements is to work out the relationship between unit price and RRP (or it's equivalents).
If you'd like to find out more, then do give us a call.
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